macro cumulative test spring 2016

A business buys $5,000 worth of inputs from other firms in order to produce a product. The business makes 100 units of the product and each of them sells for $65. The value added by the business to these products is:

$1,500

Suppose a firm can produce 70 units of a product, Zenia, by combining labor, land, capital, and entrepreneurial ability, as in the four alternative techniques shown in the table below. Assume further that the firm can hire labor at $3 per unit, land at $3 per unit, capital at $6 per unit, and entrepreneurship at $9 per unit. Techniques A B C D labor 4 10 6 5 land 5 3 3 3 capital 5 2 4 4 entrepreneurship 1 1 1 1 Refer to the above table, and suppose that the firm uses production technique D. If each of the 70 units of Zenia that are produced sells for $1 apiece, then how much will be the profits of the firm from 70 units?

$13

The following are national income account data for a hypothetical economy in billions of dollars: gross private domestic investment ($320); imports ($35); exports ($22); personal consumption expenditures ($2,460); and, government purchases ($470). What is GDP in this economy?

$3,237 billion

The following data show the supply and demand schedules for a product. price quantity demanded quantity supplied $40 100 15 $50 50 20 $60 48 25 $70 45 30 $80 40 40 $90 30 46 $100 25 50 Refer to the above data. The government now introduces a subsidy payment to producers of $30 per unit. Assuming a purely competitive market for the product, the new equilibrium price will be between:

$60-$70

The disposable income (DI) and consumption (C) schedules are for a private, closed economy. All figures are in billions of dollars. disposable income consumption 0 8 80 80 160 152 240 224 320 296 400 368 Refer to the data above. At the $320 billion level of disposable income, the average propensity to save is:

0.075

disposable income consumption 10,000 12,000 18,000 18,000 26,000 24,000 34,000 30,000 42,000 36,000 50,000 42,000 Refer to the consumption schedule above. The marginal propensity to consume is:

0.75

Which of the following represents a positive economic statement?

1 The unemployment rate is 4.8 percent.

(look at point connecting all lines) Refer to the saving schedule above. The break-even income would be level:

2

Consider two scenarios for a nation's economic growth. Scenario A has real GDP growing at an average annual rate of 3.5%; scenario B has an average annual growth of 4.5%. The nation's real GDP would double in about:

20 years under scenario A, versus 16 years under scenario B

Pham can work as many or as few hours as she wants at the college bookstore for $9 per hour. But due to her hectic schedule, she has just 15 hours per week that she can spend working at either the bookstore or other potential jobs. One potential job, at a café, will pay her $12 per hour for up to 6 hours per week. She has another job offer at a garage that will pay her $10 an hour for up to 5 hours per week. And she has a potential job at a daycare center that will pay her $8.50 per hour for as many hours as she can work. If her goal is to maximize the amount of money she can make each week, how many hours will she work at the bookstore?

4 hours

Suppose that you are given a $100 budget at work that can be spent only on two items: staplers and pens. If staplers cost $10 each and pens cost $2.50 each, then the opportunity cost of purchasing one stapler is:

4 pens

A nation's real GDP was $250 billion in 2013 and $265 billion in 2014. Its population was 120 million in 2013 and 125 million in 2014. What is its real GDP growth rate in 2014?

6.0%

If the total population is 200 million, the labor force is 100 million, and 92 million workers are employed, then the unemployment rate would be:

8 percent

The unemployment rate in an economy is 6%. The total population of the economy is 290 million, and the size of the civilian labor force is 150 million. The number of unemployed workers in this economy is:

9 million

Use the following graph of the demand for coffee: (all three lines curve down) Refer to the above diagram of three demand curves for coffee. Which of the following would cause a shift in coffee demand from D1 to D3?

A decrease in the price of tea

(supply line perpendicular to two different demand lines) Refer to the above graph, which shows the market for beef where demand shifted from D1 and D2. The change in equilibrium from E1 to E2 cannot be a result of:

A decrease in the productivity of cattle farms

Which of the following would shift the saving schedule upward?

A decrease in wealth

Net exports is a positive number when:

A nation's exports of goods and services exceed its imports

The entry of women into the workforce since the 1960s resulted in:

A shift outward in the production possibilities curve of the United States

(supply and demand curves cross each other) In a competitive market illustrated by the diagram above, a price floor of $25 per unit will result in:

A surplus of 200 units

If the market price is above the equilibrium price:

A surplus will occur and producers will produce less and lower prices

When economists describe "a market," they mean:

A system that allows buyers and sellers to interact with one another

GDP is the market value of:

All final goods and services produced in an economy in a given year

In a graph with "crop yield" on the vertical axis and "rainfall" on the horizontal axis, the vertical intercept refers to the:

Amount of crop yield when "rainfall" is zero

An increase in the quantity of hybrid cars supplied would be caused by which of the following?

An increase in the demand for hybrid cars

Which of the following illustrates a macroeconomic question?

Are increasing wage demands by workers contributing to price inflation?

The unemployed are those people who:

Are not employed but are seeking work

Economics is a social science that studies how individuals, institutions, and society may:

Best use resources to maximize satisfaction of economic wants

The recurrent ups and downs in the level of economic activity extending over several years are referred to as:

Business cycles

In the circular flow model of the market system, households:

Buy products and sell resources

In a private closed economy, national income is $4.5 trillion and savings equals $6.4 billion. Based on this data, the marginal propensity to consume:

Cannot be calculated from the data given

One major element of the command system is:

Central planning conducted by the government

The MPC can be defined as the:

Change in consumption divided by the change in income

In a market system, self-interest is the motivating force that:

Coordinates and creates consistency in the operations of various parts of the economy

Inflation caused by a rise in the prices of inputs is referred to as:

Cost-push inflation

In calculating the unemployment rate, part-time workers are:

Counted as employed because they are receiving payment for work

The development of the digital video and camera which replaced film cameras is an example of:

Creative destruction

Which of the following is not a key element of the scientific method?

Designing data

Personal saving is equal to:

Disposable income minus consumption

(multiple lines and letters measure at income) Refer to the consumption schedule above. The average propensity to save at income level B is represented by:

EF/BF

Consider an economy that is producing inside its production possibilities curve. This economy could move closer towards its production possibilities curve by:

Employing more of its available resources

Okun's law indicates that for:

Every 1 percent that the actual unemployment rate exceeds the natural unemployment rate, a 2 percent GDP gap is generated

The market system is said to be characterized by "consumer sovereignty." This is because:

Firms must match their production decisions to the consumers' choices

The purpose of the ceteris paribus assumption used in economic analysis is to:

Focus on the effect of a single factor on a certain variable

The use of money for exchange and trade:

Fosters more specialization in production

(multiple lines and letters) Refer to the consumption schedule above. At income level 3, the amount of consumption is represented by the line segment:

GH

A 1 > <2 B 3> <4 C 6> <5 D 8> <7 A Refer to the above figure. If box A represents households, B the product market, and C businesses, then flow (2) and flow (4) would represent:

Goods and services

A recurring theme in economics is that people:

Have unlimited economic wants, but limited resources

The slope of a graph with "income" on the horizontal axis and "saving" on the horizontal axis is +0.2. This means that if: (BOTH SAY HORIZONTAL)

Income increases by $100, then saving will rise by $20

The table below shows the weekly demand for hamburger in a market where there are just three buyers. price buyer 1 buyer 2 buyer 3 QD 1 QD 2 QD 3 $6 7 4 6 $5 9 7 8 $4 15 10 12 $3 21 15 16 Refer to the above table. If the price of hamburger falls from $5 to $3, then the weekly market quantity demanded will:

Increase from 24 to 52

An increase in demand for oil along with a simultaneous increase in supply of oil will:

Increase quantity, but whether it increases price depends on how much each curve shifts

Which of the following is a measure of economic growth that is most useful for measuring geopolitical preeminence or military potential?

Increases in real GDP

What are the two major ways in which an economy can grow and push out its production possibilities curve?

Increases in resource supplies and advances in technology.

A point or product-combination to the left of and inside a budget line:

Is attainable, but a combination or point to the right of the line is unattainable

In Year 1, the price level was 120 and the average nominal income was $30,000. In Year 2, the price level was 125 and the average nominal level of income was $32,000. What happened to real income from Year 1 to Year 2?

It rose by $600

Modern economic growth often results in the following, except:

Less time for ordinary people to enjoy leisure activities because the primary focus is on production and work

An increase in the price of digital cameras will result in a(n):

Movement up and to the left along the demand curve for digital cameras

Nation A's real GDP was $520 billion in 2013 and $550 billion in 2014. Its population was 150 million in 2013 and 155 million in 2014. On the other hand, Nation B's real GDP was $200 billion in 2013 and $210 billion in 2014; and its population was 53 million in 2013 and 55 million in 2014. Which of the following statements is true?

Nation A's real GDP growth in 2014 is higher than Nation B's

If consumers expect prices to rise and shortages to occur in the future, then there will be a shift:

Of the consumption schedule upward and of the saving schedule downward

To avoid multiple counting in national income accounts:

Only final goods and services should be counted

The simple multiplier 1/MPS:

Overstates the actual multiplier because it excludes leakages in domestic spending from the purchase of imports or the paying of taxes

An example of intermediate goods would be:

Paper and ink bought by a publishing company

On average, households in China save 40 percent of their annual income each year, whereas households in the United States save less than 5 percent. Production possibilities are growing at roughly 9 percent annually in China and 3.5 percent in the United States. Use graphical analysis of "present goods" versus "future goods" to explain the differences in growth rates. Which point, A or B, best represents the combination of present and future goods in the United States? Which production possibilities curve best represents future growth in the United States? Which point, A or B, best represents the combination of present and future goods in China? Which production possibilities curve best represents future growth in China?

Point A PPC2 Point B PPC3

A recession is a decline in:

Real GDP that lasts six months or longer

The Great Recession that started in 2007 was triggered by shocks in which of the following economic sectors?

Real estate and financial markets

The money income of households consists of all the following, except:

Revenues

Which of the following best describes the concept of utility and economic behavior?

Satisfaction from consuming goods or services.

Laissez-faire capitalism limits the government's economic functions to the following, except:

Setting prices of individual goods and services

The Great Recession of 2007-2009 altered the prior behavior of consumers in the economy by:

Shifting the consumption schedule down

The role of an assumption in an economic theory is to:

Simplify the complex reality

In an economy, for every $10 million increase in disposable income, saving increases by $2 million. It can be concluded that the:

Slope of the consumption schedule is .8

Suppose that, on the basis of a nation's production possibilities curve, an economy must sacrifice 10,000 pizzas domestically to get the 1 additional industrial robot it desires, but that it can get the robot from another country in exchange for 9,000 pizzas. Now consider the following statement: "Through international specialization and trade, a nation can reduce its opportunity cost of obtaining goods and thus 'move outside its production possibilities curve.'" Which of the following explains the relationship between the situation described and the statement?

Specialization and trade have the same effect as having more and better resources or discovering improved production techniques.

If a family's MPC is 0.7, it means that the family is:

Spending seven-tenths of any increment to its income

(two lines perpendicular, difference between points) Refer to the above diagram for the milk market. If the price were $2 per gallon, then there would be a:

Surplus of 10 million gallons

The highly influential book by Adam Smith, who brought up the "invisible hand" notion, is titled:

The Wealth of Nations

There is a surplus of tomatoes in the market. This implies that:

The current price is set above the equilibrium level

Which of the following represent a normative economic statement?

The government ought to lower taxes so people have more money.

Other things being equal, the law of demand suggests that as:

The price of iPads decreases, the quantity demanded will increase

Which of the following guides sensible decisions regarding the management of business risk in a market system?

The profit and loss system

The slope of the consumption schedule between two points on the schedule is:

The ratio of the change in consumption to the change in disposable income between those two points

The opportunity cost of doing or getting something is best and fully defined as:

The value of the best alternative that is given up in order to do or get something

Which of the following is a primary use for national income accounts?

To measure changes in the value of production and income in the economy

The opportunity cost of constructing a new public highway is the:

Value of other goods and services that are sacrificed in order to construct the new highway

In order to derive a market demand curve from individuals' demand curves, we add up the:

Various individuals' quantities demanded at each price level

Economic systems differ from one another based on who own the factors of production and:

Who make decisions regarding what to produce and how it is produced

A government-set price floor on a product:

Will attract more resources towards the production of the product

The "rule of 70" is a formula for determining the approximate number of:

Years that it would take for a value (like real GDP) to double

The economic perspective entails:

a comparison of marginal benefits and marginal costs in decision making.

The figure below shows the supply curve for tennis balls, S1, for Drop Volley Tennis, a producer of tennis equipment. If production costs were to increase, the quantities supplied at each price would be as shown by the third column of the table ("S2 Quantity Supplied"). a. Use the figure to fill in the quantity supplied given the supply curve S1 for each price in the table below (second column, gray shaded cells). price Q1 supplied Q2 supplied change in supply $3 15 4 -11 $2 10 2 -8 $1 5 0 -5 b. Use that data to draw supply curve S2 on the graph below. c. In the fourth column (gray shaded cells) of the table in part a, enter the amount by which the quantity supplied at each price changes due to the increase in product costs. (Use positive numbers for increases and negative numbers for decreases.) d. Did the increase in production costs cause a "decrease in supply" or a "decrease in quantity supplied"?

a. #'s in chart b. (0,1) (2,2) (4,3) points on graph c. #'s in chart d. a decrease in supply

Suppose that an initial $20 billion increase in investment spending expands GDP by $20 billion in the first round of the multiplier process. Also assume that GDP and consumption both rise by $10 billion in the second round of the process. a. What is the MPC in this economy? b. What is the size of the multiplier? c. If, instead, GDP and consumption both rose by $12 billion in the second round, what would have been the size of the multiplier?

a. $0.5 b. 2 c. 2.5

Let's put dollar amounts on the flows in the circular flow diagram below. a. Suppose that businesses buy a total of $100 billion of the four resources (labor, land, capital, and entrepreneurial ability) from households. If households receive $60 billion in wages, $10 billion in rent, and $20 billion in interest, how much are households paid for providing entrepreneurial ability? b. If households spend $55 billion on goods and $45 billion on services, how much in revenues do businesses receive in the product market?

a. $10 billion b. $100 billion

The per-unit cost of an item is its average total cost (= total cost/quantity). Suppose that a new cell phone application costs $250,000 to develop and only $0.70 per unit to deliver to each cell phone customer. a. What will be the per-unit cost of the application if it sells 100 units? b. What will be the per-unit cost of the application if it sells 1,000 units? c. What will be the per-unit cost of the application if it sells 1 million units?

a. $2,500.70 b. $250.70 c. $0.95

Use the table below to solve this problem. output & income con. sav. APC APS MPC MPS 240 248 -8 1.0167 -0.0167 0.8 0.2 260 260 0 1.0000 0.0000 0.8 0.2 280 272 8 0.9857 0.0143 0.8 0.2 300 284 16 0.9733 0.0267 0.8 0.2 320 296 24 0.9625 0.0375 0.8 0.2 340 308 32 0.9529 0.0471 0.8 0.2 360 320 40 0.9444 0.0556 0.8 0.2 380 332 48 0.9368 0.0632 0.8 0.2 400 344 56 0.9300 0.0700 0.8 0.2 Suppose the wealth effect is such that a $10 change in wealth produces a $3 change in consumption at each level of income. Assume real estate prices tumble such that wealth declines by $80. a. What will be the new level of consumption at the $340 billion level of disposable income? b. What will be the new level of saving?

a. $284 b. $56

Using the following national income accounting data, compute (a) GDP, (b) NDP, and (c) NI. All figures are in billions. Compensation of employees $196.2 U.S. exports of goods and services $19.8 Consumption of fixed capital $11.8 Government purchases $59.4 Taxes on production and imports $14.4 Net private domestic investment $52.1 Transfer payments $13.9 U.S. imports of goods and services $16.5 Personal taxes $40.5 Net foreign factor income $2.2 Personal consumption expenditures $219.1 Statistical discrepancy $0.0 a. GDP = b. NDP = c. NI =

a. $345.7 billion b. $333.9 billion c. $336.1 billion

ADVANCED ANALYSIS Assume that demand for a commodity is represented by the equation P = 10 - 0.2Qd Supply is represented by the equation P = 2 + 0.2Qs where Qd and Qs are quantity demanded and quantity supplied, respectively, and P is price. a. Using the equilibrium condition Qs = Qd, determine equilibrium price. b. Now determine equilibrium quantity.

a. $6 b. 20 units

Use the table below to solve this problem. output & income con. sav. APC APS MPC MPS 480 496 -16 1.0167 -0.0167 0.8 0.2 520 528 -8 1.0000 0.0000 0.8 0.2 560 560 0 0.9857 0.0143 0.8 0.2 600 592 8 0.9733 0.0267 0.8 0.2 640 624 16 0.9625 0.0375 0.8 0.2 680 656 24 0.9529 0.0471 0.8 0.2 720 688 32 0.9444 0.0556 0.8 0.2 760 720 40 0.9368 0.0632 0.8 0.2 800 752 48 0.9300 0.0700 0.8 0.2 Suppose the wealth effect is such that a $10 change in wealth produces a $1 change in consumption at each level of income. Assume real estate prices tumble such that wealth declines by $320. a. What will be the new level of consumption at the $680 billion level of disposable income? b. What will be the new level of saving?

a. $624 b. $56

Data for the country of Upper Mongoose are given in the table below. All figures are in billions of dollars. net exports 50 Value of new goods and services produced in the underground economy 75 Personal consumption expenditures 400 Value of the services of stay-at-home parents 25 Gross domestic investment 100 Government purchases 100 Total 750 a. What is Upper Mongoose's GDP for the year? b. What is the size of the underground economy as a percentage of GDP? c. By what percentage would GDP be boosted if the value of the services of stay-at-home spouses were included in GDP?

a. $650 billion b. 11.54 percent c. 3.85 percent

Suppose that you are on a desert island and possess exactly 20 coconuts. Your neighbor, Friday, is a fisherman, and he is willing to trade 2 fish for every 1 coconut that you are willing to give him. Another neighbor, Kwame, is also a fisherman, and he is willing to trade 3 fish for every 1 coconut. a. On the diagram below, draw budget lines for trading with Friday and for trading with Kwame. (Put coconuts on the vertical axis.) b. What is the slope of the budget line from trading with Friday (coconuts for fish)? c. What is the slope of the budget line from trading with Kwame (coconuts for fish)? d. Which budget line features a larger set of attainable combinations of coconuts and fish? e. If you are going to trade coconuts for fish, would you rather trade with Friday or Kwame?

a. (two lines both start at 20 coconuts, Friday ends at 40 fish, Kwame ends at 60 fish) b. -0.5 c. -0.3 d. budget line from trading with Kwame e. Kwame

Refer to the figure below and assume that the combined consumer goods + capital goods values for points a, b, and c are $10 billion, $20 billion, and $15 billion respectively. (two curved lines PPF1 and PPF2) a. If the economy moves from point a to point b over a 5-year period, what must have been its annual rate of economic growth? b. If, instead, the economy was at point c at the end of the 5-year period, by what percentage did it fall short of its production capacity?

a. 14 percent b. 25 percent

What annual growth rate is needed for a country to double its output in each of the following cases? a. In 5 years: b. In 28 years: c. In 56 years: d. In 70 years:

a. 14.00 percent b. 2.50 percent c. 1.25 percent d. 1.00 percent

A country's annual growth rates over a 10-year period are shown in the following table. Year Growth Rate 1 5% 2 3 3 4 4 -2 5 -3 6 3 7 4 8 5 9 6 10 3 a. What was the country's trend rate of growth over this period? b. Which set of years most clearly demonstrates an expansionary phase of the business cycle? Which set of years best illustrates a recessionary phase of the business cycle?

a. 2.8 percent b. years 6 through 9 years 4 through 5

Suppose the CPI was 120 last year and is 144 this year. a. What is this year's rate of inflation? b. In contrast, suppose that the CPI was 120 last year and is 114 this year. What is this year's rate of inflation? c. What term do economists use to describe this second outcome?

a. 20 percent b. -5 percent c. deflation

Potatoes cost Janice $1 per pound, and she has $5.00 that she could possibly spend on potatoes or other items. Suppose she feels that the first pound of potatoes is worth $1.50, the second pound is worth $1.14, the third pound is worth $1.05, and all subsequent pounds are worth $0.30. a. How many pounds of potatoes will she purchase? b. What if she only had $2 to spend?

a. 3 pounds b. 2 pounds

Suppose your nominal income rose by 5.3 percent and the price level rose by 2.3 percent in some year. a. By what percentage would your real income (approximately) increase? b. If your nominal income rose by 2.8 percent and your real income rose by 1.4 percent in some year, what must have been the (approximate) rate of inflation?

a. 3.0 percent b. 1.4 percent

Suppose you won $15 on a lotto ticket at the local 7-Eleven and decided to spend all the winnings on candy bars and bags of peanuts. Candy bars cost $0.75 each while bags of peanuts cost $1.50 each. a. Complete the table below (gray shaded cells) showing the alternative combinations of the two products that are available. b. Use the data in the table to plot a budget line in the graph. What is the slope of the budget line? What is the opportunity cost of one more candy bar? bag(s) of peanuts. What is the opportunity cost of one more bag of peanuts? candy bar(s). Do these opportunity costs rise, fall, or remain constant as additional units are purchased? c. Does the budget line tell you which of the available combinations of candy bars and bags of peanuts to buy? d. Suppose that you had won $30 on your ticket, not $15. Is the slope of a new budget line flatter, steeper, or the same as in the diagram above? Has the number of available combinations increased or decreased?

a. Alternative Combinations Goods A B C D E F Candy bars 0 4 8 12 16 20 Bags of peanuts 10 8 6 4 2 0 b. (From 10 bags straight down to 20 candy bars with 6 points matched in between) -0.5 0.5 2 remain constant c. no d. the same increased

Look at the figure below. Suppose that the cost of cheese falls, so that the marginal cost of producing pizza decreases. a. Will the MC curve shift up or down? b. Will the optimal amount of pizza increase or decrease?

a. MC will shift down b. The optimal amount of pizza will increase

Suppose that disposable income, consumption, and saving in some country are $400 billion, $350 billion, and $50 billion, respectively. Next, assume that disposable income increases by $40 billion, consumption rises by $28 billion, and saving goes up by $12 billion. a. What is the economy's MPC? What is its MPS? b. What was the APC before the increase in disposable income? What was the APC after the increase?

a. MPC = 0.70 MPS = 0.30 b. APC before = 0.88 APC after = 0.859

Suppose that the demand and supply schedules for rental apartments in the city of Gotham are as given in the table below. monthly rent apart. demanded apart. supplied $2750 12500 17500 $2250 15000 15000 $1750 17500 12500 $1250 20000 10000 $750 22500 7500 a. What is the market equilibrium rental price per month and the market equilibrium number of apartments demanded and supplied? b. If the local government can enforce a rent-control law that sets the maximum monthly rent at $1,750, will there be a surplus or a shortage? Of how many units? How many units will actually be rented each month? c. Suppose that a new government is elected that wants to keep out the poor. It declares that the minimum rent that can be charged is $2,750 per month. If the government can enforce that price floor, will there be a surplus or a shortage? Of how many units? How many units will actually be rented each month?

a. Market equilibrium rental price is $2,250 correct per month. Market equilibrium quantity is 15,000 correct apartments. b. Shortage 5,000 apartments per month 12,500 apartments. c. Surplus 5,000 apartments per month. 12,500 apartments.

How (if at all) do each of the following events affect the location of a country's production possibilities curve? a. The quality of education increases: b. The number of unemployed workers increases: c. A new technique improves the efficiency of extracting copper from ore: d. A devastating earthquake destroys numerous production facilities:

a. curve shifts outward b. no change c. curve shifts outward d. curve shifts inward

a. Specify the typical shapes of marginal-benefit and marginal-cost curves. The marginal benefit curve is ... sloping. The marginal cost curve is ... sloping. b. With these curves, the optimal allocation of resources to a particular product will occur when c. If current output is such that marginal cost exceeds marginal benefit, should more or fewer resources be allocated to this product?

a. downward a. upward b. MB = MC c. fewer

Suppose that you initially have $100 to spend on books or movie tickets. The books start off costing $25 each and the movie tickets start off costing $10 each. For each of the following situations, would the attainable set of combinations that you can afford increase or decrease? a. Your budget increases from $100 to $150 while the prices stay the same: b. Your budget remains $100, the price of books remains $25, but the price of movie tickets rises to $20: c. Your budget remains $100, the price of movie tickets remains $10, but the price of a book falls to $15:

a. increase b. decrease c. increase

Indicate whether each of the following statements applies to microeconomics or macroeconomics: a. The unemployment rate in the United States was 8.1 percent in August 2012: b. A U.S. software firm discharged 15 workers last month and transferred the work to India: c. An unexpected freeze in central Florida reduced the citrus crop and caused the price of oranges to rise: d. U.S. output, adjusted for inflation, decreased by 2.4 percent in 2009: e. Last week Wells Fargo Bank lowered its interest rate on business loans by one-half of 1 percentage point: f. The consumer price index rose by 3.8 percent from August 2011 to August 2012:

a. macroeconomics b. microeconomics c. microeconomics d. macroeconomics e. microeconomics f. macroeconomics

For each of the following situations involving marginal cost (MC) and marginal benefit (MB), indicate whether it would be best to produce more, fewer, or the current number of units. a. 3,000 units at which MC = $10 and MB = $13: b. 11 units at which MC = $4 and MB = $3: c. 43,277 units at which MC = $99 and MB = $99: d. 82 units at which MC < MB: e. 5 units at which MB < MC:

a. more b. fewer c. current number d. more e. fewer

Match each term with the correct definition. a. The next-best thing that must be forgone in order to produce one more unit of a given product: b. The pleasure, happiness, or satisfaction obtained from consuming a good or service: c. The social science concerned with how individuals, institutions, and society make optimal (best) choices under conditions of scarcity: d. Making choices based on comparing marginal benefits with marginal costs:

a. opportunity cost b. utility c. economics d. marginal analysis

Suppose Natasha currently makes $50,000 per year working as a manager at a cable TV company. She then develops two possible entrepreneurial business opportunities. In one, she will quit her job to start an organic soap company. In the other, she will try to develop an Internet-based competitor to the local cable company. For the soap-making opportunity, she anticipates annual revenue of $465,000 and costs for the necessary land, labor, and capital of $395,000 per year. For the Internet opportunity, she anticipates costs for land, labor, and capital of $3,250,000 per year as compared to revenues of $3,275,000 per year. a. Should she quit her current job to become an entrepreneur? b. If she does quit her current job, which opportunity would she pursue?

a. yes b. the organic soap company

The scientific method is the technique used by economists to determine

economic principles.

The following table illustrates alternative production techniques for producing 18 widgets that can be sold for $1 each for a total revenue of $18. resource $ per unit Techniques A B C D labor 2 3 2 1 2 land 1 2 1 3 1 capital 4 1 2 2 3 entrepreneurship 3 1 2 1 1 Using A technique cited in the previous question will result in an:

economic profit of $3

Tina walks into Ted's sporting goods store and buys a punching bag for $100. That $100 payment counts as _______________ for Tina and _______________ for Ted.

expenditure income

Because economic resources are used to produce goods and services, they are called

factors of production or inputs

A linear relationship only refers to one whose graph is either vertical or horizontal.

false

All activities included in GDP serve to enrich society.

false

Even if prices are fixed and competition is restricted by the government, the "invisible hand" will still work in the economy and lead to economic efficiency.

false

If the consumption schedule becomes steeper, then the saving schedule will become steeper also.

false

If two sets of data are inversely related, they will appear on a graph as an upward-sloping line.

false

In graphing a relationship between two variables, economists always follow the mathematical convention. Thus, if price is the independent variable then it is measured on the horizontal axis.

false

Selfishness and self-interest are identical concepts.

false

The lower the marginal propensity to consume, the larger is the multiplier.

false

The presence of ticket scalpers in popular events like concerts will hurt consumers who buy from the scalpers.

false

Suppose a city block was going to be used for a parking lot. The opportunity cost would be

greater in New York City because the alternative uses of the block are more valuable.

A normative statement is one that:

is based on value judgments.

Any combination of goods lying outside of the budget line:

is unattainable, given the consumer's income.

Economists classify resources as

labor, land, real capital, and entrepreneurs.

The economizing problem is one of deciding how to make the best use of:

limited resources to satisfy virtually unlimited wants.

Economic resources are the

natural, human, and manufactured inputs used to produce goods and services.

For economists, the word "utility" means:

pleasure or satisfaction

If households consume less at each level of disposable income, they are:

saving more

In deciding whether to study for an economics quiz or go to a movie, one is confronted by the idea(s) of:

scarcity and opportunity costs.

A student will decide to attend class when

the marginal benefit of attending exceeds the marginal cost of attending.

Studies indicate that married men on average earn more income than unmarried men of the same age and education level. From this statement, we can conclude that

there is a correlation, but marriage is not necessarily the cause of higher income for married men.

College graduates who dislike business risk will mostly seek to be hired by firms as labor, rather than starting their own firms.

true

Demand-pull inflation is usually accompanied by low unemployment and higher real output.

true

If nominal GDP in one year is $5,000 billion and the price index is 135, then the real GDP that year would be $3,704 billion.

true

In a competitive market economy, firms and resource suppliers seeking to further their own self-interest will end up, as though guided by an "invisible hand," promoting the public interest.

true

In an economy is experiencing inflation and output growth, nominal GDP will rise faster than real GDP.

true

In cases where the supply curve is vertical, any change in demand will cause only a change in price but no change in quantity.

true

In the market for gasoline, if the change in demand due to the start of the summer driving season is greater than the change in supply due to disruptions in the refinery operations in the Gulf, then the equilibrium quantity will increase.

true

The multiplier effect magnifies the effect of a decrease in spending, resulting in a bigger decrease in real GDP.

true

The slope of a graph measures the rate of change in one variable as the other variable changes.

true

Kelly works at an ice cream shop and observes that the number of people buying ice cream varies greatly from day to day. For a couple of weeks she has recorded the number of people at the shop each day, as well as the daily temperature. If Kelly is using the scientific method to better understand ice cream buying habits, her next step is to:

use the observed data to form a hypothesis about ice cream buying behavior.

In a market system scarce goods are allocated through the operation of

what must be sacrificed in using a resource for its next best use.